Government-funded agribusinesses: empirical evidence to what extent is farming supported in Lithuania

Abstract

<p>The empirical analysis on the effectiveness of the subsidies to farms following the Common Agricultural Policy (CAP) was carried out for this presentation. The aim of this analysis was to explore to what an extent agribusiness in Lithuania are supported by the government and the differences in the effectiveness of this support among the farms. The study evaluated the extent to which current subsidies increased the revenue generated from core business operations, the impact of current subsidies on profitability, and the extent to which investment subsidies have affected the investment capacity of farms, focusing on the differences among them regarding their size and farming conditions. To achieve these goals three indicators such as the nominal protection coefficient (NPC), return on assets (ROA) and the share of subsidies for investments in gross capital formation were respectively used. The effect of subsidies is measured as the difference between the values of each indicator calculated "with subsidies" (reflecting the actual situation) and "without subsidies" (simulation). Aggregated data from the Lithuanian Farm accountancy data network (FADN) survey in 2020- 2022 were used for the analysis.</p> <p>It was found that current subsidies increased farm total revenue generated from market transactions the most in medium-sized farms (45-50% in farms from 20 to 50 ha), and least in small farms (up to 10 ha) and large farms from 150 ha (10% and 14%, respectively). In addition, this effect is significantly higher in organic farms and farms located in areas with natural or other specific constraints (90% and 45%, respectively). In terms of the impact on the profitability, current subsidies increased the ROA by 10-15 percentage points in medium-sized farms (20-100 ha) and in organic farms as well. Meanwhile, this impact is much smaller on farms up to 10 ha and large on farms from 150 ha (pp. +3 and +6, respectively). Farms with 10-30 ha had the highest contribution of investment subsidies to gross capital formation (about 65% of total investment), as well as very small farms (up to 50%), while in large farms this indicator reached only about 2 %. Thus, the effectiveness of CAP support varies greatly between farms, which means a distortion of the competitive conditions from an economic point of view.</p>